Wednesday, August 17, 2011

In a recent blog post, David Drummond, Google’s chief legal officer, wrote that a modern smartphone might be susceptible to as many as 250,000 potential patent claims, depending on how broadly those patents and claims were interpreted.

“The trouble is that in this industry so often a patent is not a clearly defined property right, but a lottery ticket of uncertain value,” said Scott Stern, a professor at the Sloan School of Management at the Massachusetts Institute of Technology. “That uncertainty can carry a lot of risk and cost.”

In addition to all that complexity, randomness, and waste, patent law shifts money around in ways that appear unrelated or even opposed to innovation:

This patent gold rush . . . is diverting money for innovation from industries crucial to the economic future of the United States, analysts say. Patents were created as an incentive for innovation, giving inventors a temporary right to commercialize their ideas, without others copying them. While the recent blockbuster patent deals may make sense for the companies, analysts say, they are fed largely by legal considerations — asserting patent claims or defending against claims — rather than economic ones.

So the very innovation patents were intended to encourage, they say, suffers in the patent wars. “You’d much rather see Apple spend some of that $4 billion on new inventions, and Google invest that $12 billion to generate new knowledge,” said Josh Lerner, an economist at the Harvard Business School. “It’s a transfer of wealth from innovators to bondholders and stockholders who have no motivation to innovate. It’s disturbing.”

So, when these observations make for a good article, the New York Times is willing to point out how a government policy can have unintended consequences that are contrary to the policy's original purpose. Patent law is only one of many examples of how this can happen; the economist Thomas Sowell has practically based a career on calling out such policies. I hope the New York Times editorial page writers are keeping this lesson in mind too, instead of just assuming that wherever the free market fails to work perfectly, legislation or regulation can make it better.

1 comments:

People often forget the fundamental bargain underlying the patent: a term of exclusivity in exchange for disclosure. The written description in a patent (the specification) is essentially a "how to" guide for the invention. The specification is distinct from the claims portion which have more legal import.

The alternatives to patents include no invention at all due to lack of incentive, or, alternatively, trade secrecy. Trade secrecy is much much older in the mercantile world (methods of making silk were once trade secrets).

The founders (read, Jefferson) understood the public benefit of "full disclosure." I put full disclosure in scare quotes because while inventors are required by law to disclosure their inventions, they are not required to put a KMart blinking light surrounding the "best mode" or embodiment in their patent.

I once built a home heating system in my attic using an expired patent. I copied it as closely as I could. Because the patent was expired, I knew that its principle value was for people like me to make use of it. It's a pity that expiration dates aren't usually include along with patents. The general public might be more apt to mine what's out there and freely available.